Martin Wheatley, managing director of the Financial Services Authority, has been appointed to lead a review into the setting of LIBOR.
It will determine whether the setting of the LIBOR should be brought under the regulatory perimeter of the Financial Services and Market Act as a regulated activity, how LIBOR is constructed, the appropriate governance structure for LIBOR and an alternative rate-setting processes.
It will also consider the scope of civil and criminal sanctioning powers regarding financial misconduct and LIBOR/market abuse.
A discussion paper will be published on 10 August with four weeks available for responses and the review will be reported by the end of the summer in order for changes to be implemented in the Financial Services Bill.

LIBOR was brought into the spotlight back in June when it was revealed Barclays had been fined for misconduct towards the LIBOR and trying to influence other banks' submissions. The LIBOR rate is the reference rate banks charge when lending to each other.
Mr Wheatley said: "The findings of the FSA- in conjunction with the US CTFC and Department of Justice- relating to misconduct in respect of LIBOR and EURIBOR submissions are extremely serious in nature. This benchmark rate is used globally for trillions of dollars worth of financial contracts.
"Therefore it is clear that urgent reform of the LIBOR compilation process is required. Such reform may include amendments to the technical definition used for LIBOR, the associated governance framework and the role of official regulation."